Economy Posts a Gain of 2.6% in 2nd Quarter

The nation’s economy, spurred by consumer spending and a resurgence of exports, grew at a moderate annual rate of 2.6% during the second quarter of the year, the Commerce Department reported Friday.

The expansion was healthier than many economists had expected, and experts say that the business recovery, now in its 56th month, shows no signs of flagging.

“The odds are the economy will keep growing this year and next,” said Allen Sinai of Shearson Lehman Bros., a New York brokerage firm. “The economy looks to be in good shape and much better balanced than a year ago.”

Below First Quarter

The 2.6% rise in the gross national product, the total measurement of the nation’s goods and services, fell well below the 4.4% annual growth rate posted in the year’s first quarter. The earlier jump was prompted largely by a buildup in inventories, the goods on shelves and in warehouses. The second-quarter rate, by contrast, was much better in final sales.

“It was healthier growth, coming from actual sales to business, government and consumers,” said Irwin Kellner, chief economist for Manufacturers Hanover, a major New York bank.

Commerce Secretary Malcolm Baldrige, encouraged by the news, expressed confidence that the economy will meet the Administration’s growth target of 3% for all of 1987. “Nothing is ever in the bag, but I feel we can do that,” he told a news conference.

A recovery in consumer spending and an increase in orders for manufacturing equipment helped the quarterly results, Baldrige noted.

The total output of goods and services grew $24.2 billion. Consumer spending, which had slowed in the first quarter, jumped a hefty $12.8 billion.

Exports Rise

In another significant development, exports rose for the third straight quarter, indicating that U.S. manufacturing companies have recaptured some of the sales they lost in the years when the dollar rose against other currencies. Because the dollar has since retreated, American goods are more competitive in price.

The decline in the dollar, which has become cheaper in relation to the Japanese yen and West German mark, has produced “a significant export surge” and will help spur U.S. economic growth this year, said Jerry Jasinowski, chief economist for the National Assn. of Manufacturers.

“More of what people purchase is made in the U.S.,” said Kellner of Manufacturers Hanover.

Imports Up Slightly

Exports grew $12.4 billion in the second quarter, while imports rose only $5.5 billion, the Commerce Department said.

“While consumption and investment gains are both better than expected, the most significant source of strength is the continuing improvement in net exports,” Jasinowski said. Consumer spending, along with the export expansion, was largely responsible for the GNP increase during the spring months.

Business activity was healthy, “stronger than many people had forecast, including us,” said Richard Rahn, chief economist for the U.S. Chamber of Commerce. Strong employment gains in the second quarter meant that “people had more money to spend and invest.”

Inventories Reduced

Increased outlays by consumers and investors helped reduce the massive inventories accumulated during the first quarter buildup. Business inventories fell 6.4% during the quarter.

Business executives, knowing that consumers are spending freely, are likely to become optimistic and call for increased production to refill their merchandise inventories. This, in turn, should spur further growth throughout the economy.

“I see no reason at all why we shouldn’t get all the way through 1988 with relatively strong growth,” Rahn said.

However, Baldrige acknowledged, “the path ahead is not perfectly smooth.” Sales of new cars are somewhat sluggish, and the home-building industry was hit hard earlier this year by rising interest rates.